Is Indias insurance program sustainable

tte weather insurance pilot programs launched in India in 2003 were main-streamed into insurance programs offered by the major insurance companies sold to around half a million farmers, tte biggest private insurer offering the product has broken even after two years. BASIX, the MFI that started the product has also mainstreamed the weather insurance product and automated delivery to

See Gine, Xavier, Robert Townsend and James Vickery, 2007, Patterns of Rainfall Insurance Participation in Rural India, working paper, 2007.

more than 10,000 clients for the 2006 season. Countries in sub-Saharan Africa, Latin America as well as other countries in Asia are setting up their own weather insurance projects at micro- and macro-levels. Malawi is now in its third year of smallholder based weather insurance as part of a credit package for quality seeds, however the package program experiences problems due smallholders unwillingness to repay despite good harvests. Local traders finally offered higher prices and therefore some farmers defaulted on their obligations to the programme, ttese problems are not related to the weather insurance which works well, yet they hinder scale-up and might even to an early termination. In 2006, the Government of Ethiopia successfully established contingency funding for emergency drought response in the form of weather index insurance, ttailand has a pilot for flood index insurance, Nicaragua launched a pilot in 2005, and Vietnam is setting up a large scale weather index insurance program. Markets seem to indicate that weather insurance is a sound and sustainable business, especially considering that the India experience was spurred without the support of government subsidies.

ttis article begins with an overview of risk in agriculture, focusing on how decision-makers currently cope with and manage risk in developing countries and on obstacles that impede development of effective risk transfer markets. Section 22.3 reviews the experiences of some developed countries with agricultural risk transfer. Section 22.4 explores alternative solutions based on the concept of weather index insurance, highlighting the advantages of such systems for developing countries. Section 22.5 describes the role of government in these markets. Section 22.6 provides an overview of a number of ongoing agricultural risk pilot programs and case studies in various countries.

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